Ask Liz Weston

Get smart with your money

Student Loans

Q&A: Is a spouse responsible for a cosigned loan?

By

Dear Liz: Before we were married, my spouse co-signed for two student loans for a relative. The loans have not been paid off. Occasionally the former student is late and my spouse is contacted. If I survive my spouse, who has end stage kidney disease, will I be responsible for the debts if the relative defaults?

Answer: Because your spouse co-signed the loans before marriage, the debt isn’t considered community debt. In other words, you can’t be held directly responsible if the relative defaults.

Unpaid student loan debt could become a claim against your husband’s estate, however. Some lenders might push to get reimbursement this way, while others won’t. Creditors typically have a limited period in which to make such claims (the period varies by state).

To complicate matters further: some older student loans have automatic default clauses that make the entire balance due if a co-signer dies. That means the lender could demand immediate repayment from the relative and from your spouse’s estate. It would be smart to check the promissory note to see if it contains such language. If it does, the relative can ask the lender or lenders about a “cosigner release,” which would remove your spouse’s name from the debt. Another and even better option would be for the relative to refinance the loans in their own name if possible.

An estate planning attorney can help answer your questions about the potential impact of these loans as well as other steps you can take now to protect your spouse’s estate.

Q&A: Is there a tax break for paying a child’s student loans?

By

Dear Liz: Our daughter took on substantial student loan debt to get her master’s degree. She owes about $60,000 and so far has only been able to work a minimum wage job.

If my wife and I were to pay off the loans, would there be any tax advantages or other benefits we could use to offset the expense?

Answer: You won’t get a deduction for paying your daughter’s student loans and you’ll need to be mindful of gift tax rules, but that shouldn’t deter you from this generous act if you can afford to help.

Education debt is the norm for today’s college graduates, but a Gallup poll found the majority say their student loans caused them to delay at least one major life milestone such as buying a home, starting a business, getting married or having kids. Borrowers often forgo saving for retirement in their attempts to pay down debt, losing years or even decades of compounding and diminishing their future wealth. Student loan debt also can create mental health burdens, leading to more depression, anxiety and a reduced quality of life.

The annual gift tax exemption allows you to give up to a certain amount annually to any recipient without having to file a gift tax return. In 2026, the limit is $19,000 per recipient, so you and your wife could give $38,000 this year toward paying down your daughter’s student loans. The exemption probably will be the same or slightly higher next year, allowing you to completely pay off the loans without having to file a gift tax return.

If you wanted to pay the whole bill in one go, you’d have to file the return but you’d be unlikely to pay any gift taxes. Gift taxes are only owed once the amounts you give away above the annual exemption exceed your lifetime estate and gift tax exemption, which for 2026 is $15 million.

Q&A: Paying a grandchild’s student loans

By

Dear Liz: Regarding the grandparent who would like to pay off a grandchild’s student loans.

You wrote that paying off the loans would be considered a gift. However, if the grandparent paid the funds to the institution that originated the student loan, would it then not be a gift? This would exempt the grandparent from filing the gift tax return.

Answer: You may be thinking of the unlimited exception for a family member’s medical expenses or education. Unfortunately, payments made to a student lender aren’t included in this exception.

Normally, any gift that’s larger than the annual gift exclusion limit — which is currently $17,000 per recipient — would require filing a gift tax return. Gift taxes aren’t due, however, until the amount given away over the annual limits exceeds the lifetime gift and estate exemption limit (which is currently $12.92 million). Clearly, someone has to be quite wealthy, and quite generous, before gift taxes are a concern.

But even the necessity to file a gift tax return can be avoided for larger gifts if you’re paying someone else’s education or medical expenses. The unlimited exception for these expenses, however, applies only to tuition payments made directly to the educational institution and payments for medical care made directly to a healthcare provider. Payments to other parties, such as lenders or insurance companies, aren’t included in this exception.

Q&A: Student loan payoff and gift taxes

By

Dear Liz: I adopted my granddaughter when she was 2. She has a number of student loans. Do I have the right to pay off her loans as her parent without tax consequences to her or to me?

Answer: Paying off someone’s student loans would be considered a gift. You may have to file a gift tax return, but you’re extremely unlikely to owe gift taxes.

The IRS requires you to file a gift tax return if you give any individual more than a certain amount in a year. (The 2023 annual exemption limit is $17,000.) You don’t owe gift taxes until the amount you give away above this annual limit exceeds the lifetime limit (which is 2023 is $12.92 million).

Your relationship doesn’t matter unless the recipient is your spouse. (You can give an unlimited amount to a spouse who is a U.S. citizen without gift tax consequences.)

Q&A: Should you pay down debt with extra cash? It may not be the best plan during a pandemic

By

Dear Liz: I’m a teacher on an income-based repayment plan for my federal student loans. I don’t qualify for any loan forgiveness programs for teachers because I teach in an affluent area. Right now, interest and payments on federal education loans have been suspended because of the pandemic.

I’m trying to decide what to do when payments have to restart. Should I pay down a chunk of the loans from the money that accumulated in my savings from not having to make loan payments since April? Or pick back up where I left off with making near-double payments to get down the principal (slowly) and pay off loans in another five to six years? Or only make the minimum income-based payments while waiting to see if the new administration offers more comprehensive loan forgiveness for teachers? Thank you for any insights.

Answer: Although you may not qualify for loan forgiveness through programs meant to help underserved communities, you can still qualify for the federal public service loan forgiveness program. This program erases debt for schoolteachers and other public servants after they’ve made 120 qualifying payments toward their federal student loans.

You can learn more about this program at the U.S. Department of Education site. Follow the rules carefully because many people who thought they were on track to get forgiveness have discovered otherwise.

If you’re eligible, consider making only the minimum payments on your loans so that the maximum amount is forgiven. Even if you’re not eligible for forgiveness, though, you don’t necessarily want to rush to pay off this relatively low-rate, tax-deductible debt.

You should be on track with your retirement savings, have paid off all other, higher-rate debt and have a substantial emergency fund before you make extra payments on education debt (or a mortgage, for that matter). “Substantial” means having three to six months’ worth of expenses saved. If your job is anything less than rock solid, you may want to set aside even more.

Keep in mind that the money you send to your lenders is gone for good; you can’t get it back should you need it later.

Q&A: Push lenders for student loan help

By

Dear Liz: I saw your previous column about the federal student loan payments being suspended by the CARES Act until Sept. 30, with interest being waived. I reached out to my loan servicer about my loans and was told that while they are federal loans, they were made before 2010 and are not covered by the relief bill.

Answer: Your experience is an excellent example of why loan servicers have attracted so much criticism in recent years for misleading borrowers about their options.

You should have been told that although your Family Federal Education Loan (FFEL) program loans don’t qualify, you can consolidate your loans through the U.S. Department of Education’s direct loan program and the consolidation would qualify for relief. You can get more information at StudentAid.gov.